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November 2, 2012

PIMCO’s El-Erian: 2 Things Government Must Do to Get Economy Moving

PIMCO’s CEO said Friday's jobs report shows a disparity between households and the business sector

PIMCO’s CEO Mohamed El-Erian reacted to Fridays’ jobs report, noting that a disparity exists between households that generally feel better, and the business sector, which does not. He said that disparity will be resolved first with headwinds and then with tailwinds.

“Overall, the economic data has been improving and that’s pointing to a growth rate of about 2%,” El-Erian (left) told Bloomberg Television Friday morning. “But within that, you’re getting segmentation between a household sector that feels better, because of housing and consumer confidence, and a business sector that still feels uncertain because of the political situation in Washington. So yes, overall the economic data is improving, but keep an eye on this segmentation that is quite significant.”

When queried about what can be done, outside of government policy, he said the U.S. overnment needs to do two things over the next few months.

“First, we move the headwinds, and here we are talking about the fiscal cliff and more generally the bickering coming out of Washington,” he explained. “Second, we need to produce tailwinds.”

Specifically, he said in order to produce tailwinds, the government needs to remove some of the “legacy issues” surrounding the financial crisis that are still undermining the economic recovery.

“Government has a role to play and the private sector is trying to move forward, but it has this headwind of political uncertainty that’s still there.”

In a related story, Bill Gross, El-Erian’s colleague at PIMCO, weighed in on the possible ramifications of Tropical Storm Sandy on the Tuesday’s election.

“Election may hinge on length of gas lines Monday as opposed to number of jobs announced this morning,” Gross Tweeted Friday, noting the continuing hardship and increasing frustration of those in the storm’s wake.